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In contrast with higher education at large or even the subset of private liberal arts education, art and design programs represent a niche market which under the broadest possible definition account for less than 6 percent of total baccalaureate level enrollment – with AICAD’s member institutions holding less than 8 percent of that for a total national share of approximately 0.5 percent. Within that narrow segment, AICAD institutions compete with more than 1,000 institutions for a finite annual pool of roughly 90,000 traditional age prospective students – and ultimately for a considerably smaller fraction of students who possess not only the talent to be admissible, but the ability and willingness to pay for an independent art and design education. About the data – This report is a fully revised and updated edition of the materials distributed at the April 2, 2004 presentation by Human Capital Research at AICAD’s annual meeting in Toronto. As with the original report, information used to support this analysis was derived primarily from public domain sources, however data sources have been updated and reflect the most recent issues of the following: Common Data Set (CDS), the Integrated Postsecondary Education Surveys (IPEDS), Institutional Fiscal Operation Reports and Application for the Federal Campus Based Aid Programs (FISAP), The 2000 Census Public Use Microdata Sample (PUMS) and the Census-BLS Current Population Survey (CPS).  Program Offerings and Primary Providers of Art and Design Education: …………………………………… 3-13  AICAD’s Competitive Position vis-à-vis the Market at Large: ……………………………………………………  Understanding the AICAD Enrollment Funnel: ……………………………………………………………………………  Selected Labor Market Aspects for an Art and Design Education: ………………………………………………  The Future Affordability of an AICAD Degree: ……………………………………………………………………………  Emergent Demographics and Implications for Market Geography: …………………………………………… Preface This document provides a broad overview of the current market for postsecondary art and design education and the general market position of the AICAD member institutions. For purposes of this analysis, our study has been organized around six areas of inquiry: 2

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 Program Offerings and Primary Providers of Art and Design Education Slides 4-15 present an overview of the various degree programs offered by the AICAD member institutions for the undergraduate and graduate market at large, based on the IPEDS Degree Completion Survey for Fiscal 02. Key Observations:  In FY02 AICAD schools collectively conferred 5,406 Bachelor degrees across 41 of 51 program areas identified by detailed CIP and Sector. Apart from AICAD, nationally, 1,329 institutions – including 481 publics, 794 independents, and 52 proprietary colleges conferred an additional 76,442 Bachelor degrees in the 51 program areas. In all, students aspiring to an “Art and Design Related” Bachelor’s Degree can choose from across more than 1,800 degree programs.  At the graduate level, there is greater concentration of program offerings with fewer institutional options. For FY02, AICAD schools collectively conferred 1,406 advanced degrees across 44 of a total 52 program areas, compared with 18,699 degrees for all other institutions – including 278 publics, 207 non-AICAD independents and 22 proprietary colleges.  In fields where 200 or more Bachelor degrees are conferred, AICAD institutions held a disproportionate market share in program areas: Commercial and Advertising Art, Fine/Studio Arts, Architecture, Photography, Industrial Design, Film/Video and Photographic Arts, Visual and Performing Arts, Design and Visual Communications, Fine Arts and Art Studies, Interior Design, Industrial Design, Fashion/Apparel Design, Film/Video and Photographic Arts, Design and Applied Arts, Painting, and Sculpture  In fields with a minimum of 200 degrees conferred at the graduate level, AICAD institutions’ dominant programs include: Fine/Studio Arts, Photography, Painting, Commercial and Advertising Art, Art Teacher Education, Other Art Therapy/Therapist.  Based on degrees conferred data, AICAD institutions as a group have substantially increased their market share at the graduate level since FY95 from 5.8% to 6.9% FY02. At the Baccalaureate level, the market share trend is mixed, peaking in FY99 at 7.6% with a modest but steady decline thereafter to 6.6% FY02. Methodological Issues: Because IPEDS does not distinguish between Fine Arts (BFA or MFA) and Liberal Arts Degrees, AICAD’s effective market is considerably smaller and its relative market share is considerably larger. 3

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16  AICAD’s Competitive Position vis-à-vis the Market at Large Slides 17 to 48 provide an overview of the AICAD institutions and their primary market competition. Particular attention is paid to key operating ratios for independent colleges and universities cross-tabulated against the dimensions of net tuition and academic profile. Key Observations:  Slide 17 shows a scatter plot of all independent institutions in the Art and Design market by: net tuition per student, academic profile (which incorporates standardized test scores, high school GPA, class rank percentile, and freshmen to sophomore retention) and number of Baccalaureate degrees conferred in kindred programs. Note that the relative size of each of the bubbles is proportional to the number of degrees conferred. Based on a wide range of criteria these two dimensions -net tuition revenue and student profile- have proven to be highly reliable indicators of market position. While profile index fails to account for artistic talent, strength of profile – regardless of other talents remains an important surrogate for gauging a student’s options and “worth” in the education marketplace.  Vis-à-vis all independents, with the notable exception of the Ivy League and First-Tier Liberal Arts Colleges, the AICAD institutions as a group tend to serve students with comparatively higher academic profiles, and realize comparatively greater net tuition per student than the market at large. They also – generally but with some variance, tend to maintain larger programs in the art and design disciplines than the majority of their less specialized institutional counterparts. Slide 18 provides the identical information to Slide 17 but includes all public colleges and universities as well.  Slide 19 identifies the comparative market position of the AICAD schools based on net tuition and student profile quintile rankings for all independent institutions - as shown in the prior two slides. Slide 20 shows the total number of independent institutions in the peer group sample and slide 21 share of degrees awarded across this peer group.  Our motivation for isolating the AICAD schools by cell in is twofold: first, to give each member school a sense of its relative market position (with the important caveat that our two criteria are not a be-all end-all measure, but rather merely a surrogate); and second, to help pinpoint an appropriate reference group for purposes of benchmarking their own operation – as presented in the balance of slides in this section. Note: With the incorporation of the most recent CDS, IPEDS and FISAP data, and a revised definition of Market Position which includes a more comprehensive index of academic profile (described above), the peer analysis section of this updated report is not directly comparable to the materials distributed in April, 2004.

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Net Tuition Top 20% 4 th Quintile Middle Quintile 2 nd Quintile Bottom 20% Memphis College of Art Columbus College of Art & Design Pacific Northwest College of Art Atlanta College of Art Milwaukee Institute of Art & Design Lyme Academy College of Fine Arts Montserrat College of Art The Art Institute of Boston at Lesley Oregon College of Art & Craft Art Academy of Cincinnati Maine College of Art Moore College of Art & Design The University of the Arts College for Creative Studies School of the Museum of Fine Arts The Cleveland Institute of Art San Francisco Art Institute School of the Art Institute of Chicago Minneapolis College of Art and Design Otis College of Art and Design California College of the Arts Massachusetts College of Art Kansas City Art Institute Corcoran College of Art and Design School of Visual Arts Pennsylvania Academy of the Fine Arts Ringling School of Art and Design California Institute of the Arts Parsons School of Design, New School University Art Center College of Design Maryland Institute College of Art Cooper Union Pratt Institute Laguna College of Art & Design Rhode Island School of Design AICAD Institutions by Comparative Market Position 19 Source: Common Data Set, Fiscal 04 Release, IPEDS Institutional Characteristics: FY 03, IPEDS Student Financial Aid Survey: FY 03, HCRC Custom Tabulation Bottom 20% 2 nd Quintile Middle Quintile 4 th Quintile Top 20% Profile (Academic Preparation and Freshmen-Sophomore Retention)

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The AICAD peer group norms are based on a sample of 486 independent colleges and universities with kindred art and design degree offerings that completed the most recent Common Data Set, IPEDS and FISAP reports. In all, 24 ratios are presented, organized around three topics: Enrollment Funnel:  Slides 22 to 28 show a series of measures related to size of applicant pool, admission selectivity, yield, and entering enrollment. Broadly speaking these various measures of “draw” - perhaps with the exception of enrollment yield, all correlate highly with market position. Naturally, the stronger the position of the institution the greater its application volume, geographic market range, and selectivity. Size of operation also tends to correlate highly with position and potentially contributes both to economies of scale and market identity. If at the end of the day we were forced to chose a single benchmark from this set it would be the simple ratio of applications to matrics (new entering students). Ultimately it is application volume that enables institutions to effectively shape its entering class and manage the difficult tradeoffs between student profile and net tuition.  The Enrollment Funnel  Current Family and Institutional Resources  Financial Aid 22 AICAD Peer Group Norms

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AICAD Peer Group Norms Family and Institutional Resources: Observations Concerning Gross and Net Price  Slides 30 to 32 show peer group medians for Sticker Tuition and Fees; Tuition Discount; and Net Tuition Revenue – all of which are highly correlated with market position. As the cost of attendance has continued to rise at a faster rate than inflation and family income, all three measures have become a focal point of government, trustees, families, and college administrators. Despite years of discussion and deliberation however, it is our contention that remarkably little is understood either about the price that students actually pay, or ultimately what stands behind an institution’s discount and net tuition revenue. Essentially, price is dictated by market position – and while many institutions engage in price manipulation to affect their position, such efforts should be recognized at best as a short-run strategy.  Of the various factors that contribute to an institution’s tuition discount, none is more influential than the level of demonstrated financial need. Ironically, we have seen many financial aid offices are called to task for “overspending” the aid budget when the underlying issues come back to application volume and the ability of the institution to matriculate low- and no-need students who are willing and able to pay at or near the full cost of attendance. Even in instances when gapping and preferential packaging result in lower discount, they are likely to simultaneously contribute to increased deposit melt, account receivable problems, attrition, loan defaults and ultimately to a weaker market position. 29

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Financial Aid: Observations Concerning Financial Need and Need Met  Slides 34 to 43 highlight differences in the incidence of students applying for aid, those demonstrating financial need, and in the comparative quality of aid packages and sources of aid. Few factors point more clearly to the social hierarchy within higher education than the disparity in family resources by school market position. This is reflected both in the overall proportion of students applying for aid and the proportion of students demonstrating need – and hence in the average need of all students – remarkably despite the fact that the cost of attendance among first and second tier schools is typically $10,000 to $15,000 above that of lower rated institutions.  At the same time as lower rated schools face a greater demand for aid, they are less likely to have sufficient resources to meet full need. As a result, we see a significantly higher incidence of students with unmet need (gaps) and higher levels of debt at lower rated institutions – factors which ultimately serve to weaken a school’s market position. For middle market institutions that have successfully managed to raise their student profile, the disparity in quality of aid packages compared with first- and second-tier schools almost invariably suggests an uphill climb as they try and match the financial aid offers of their new found competition.  Coupled with far greater reliance on government support, rising interest rates, a growing public-private price gap, little or no endowment, and a limited capacity to realize marginal income on tuition increases, the fiscal future for dozens of the nation’s lower rated independent colleges has become increasingly tenuous.  For middle market institutions that have successfully managed to raise their student profile, the disparity in quality of aid packages compared with first- and second-tier schools almost invariably suggests an uphill climb as they try and match the need-based offers of their new found competition. At the same time, because higher profile institutions are less likely to offer merit- or non-need aid, a number of middle-market schools have managed to buy their way to a higher profile by focusing on low- and non-needy students who would otherwise be “full-pays” at higher rated institutions. Based on our own financial aid modeling experience we have estimated as much as a 50 point decrease in SAT scores given the elimination of merit aid – hence our motivation for ranking schools on the basis of both strength of profile and net tuition. 33 AICAD Peer Group Norms

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Observations Concerning Retention and Graduation Rates  Slides 45 to 48, the final set of peer slides, show group medians for freshmen to sophomore retention and graduation rates. From a return on education investment standpoint, these slides are among the most important benchmarks because of the profound relationship between timely graduation and the cost of a college degree and degree completion and a student’s earnings after college.  While retention, timely graduation and degree completion are all highly correlated with an institution’s strength of position, it is crucial to recognize that these measures of themselves are not a value added measure. Indeed, 71 percent of the variance in five-year graduation rates among the peer institutions represented in this analysis is accounted for by strength of academic profile alone. By implication, the comparatively high graduation and retention rates observed for a majority of high profile schools potentially has a much to do with the caliber of student as the quality of experience they provide.  Nonetheless, there remains a very strong body of statistical evidence suggesting little or no difference in earnings between a high school graduate and a college dropout. And from a competitive market standpoint, timely graduation remains the single most important strategy for mitigating the price spread between and public and private institutions. In fact, using even a modest allowance for first year earnings after college, the cost of a Bachelor’s degree completed within four years at a private institution is almost universally less expensive than it would be at a public given five or more years to completion. 44 AICAD Peer Group Norms

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 Understanding the AICAD Enrollment Funnel  Based on National Longitudinal Studies Data, College Board, and ACT Test-taker statistics, there are approximately 480,000 college bound seniors who have acquired at least some art and design studio experience during their high school years. Of that number, nearly one in five will enroll in an art and design program. While the number of new entering freshmen at any of AICAD’s institutions is only a fraction of this pool (AICAD freshmen cohort range from fewer than 20 students up to about 500), in the scheme of enrollment marketing a potential pool of 90,000 is remarkably small – particularly in light of the number of prospective institutions and program offerings available.  Given the comparatively small size of this prospective pool, it is highly likely that AICAD institutions as a group share a very large number of cross-applications. In turn this raises a number of issues with regard both to long-run market potential and marketing strategy – particularly given the combined direct marketing costs that these institutions annually incur as a normal part of their recruitment effort.  Looking at recent SAT test-taker data alone, the proportion of college bound students with an expressed interest in art and design and the related discipline of photography has gradually declined but has effectively been offset by a steadily increasing number of college bound seniors.  Slides 50 to 54 show basic enrollment statistics for the AICAD member institutions. While there is a wide variance across the group as a whole, the individual school data closely mirrors the patterns observed in our peer group series and thematically leads us to the same conclusions voiced earlier concerning the crucial role that application volume plays in shaping an entering class. 49

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Number and Percent of College-Bound SAT Test-Takers with Studio Art and Design or, Photography or Film Coursework or Experience: 1996 to 2004 Art and Design Number Art and Design Percent Photography or Film Number Photography or Film Percent 51 Source: College Board National Profile of College Bound Seniors

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 Selected Labor Market Aspects for an Art and Design Education  While students enter college with innumerable motivations, born out of economic necessity and as a means of fulfilling their aspirations, it is likely that the greatest manifestations of their college experience are realized through participation in the labor force. While that statement could be made of students in nearly any discipline, art and design students exhibit a variety of characteristics that in tandem tend to distinguish them from college graduates at large including: - the possession of knowledge and competencies particularly well suited to the information economy - a high incidence of creativity, innovation, and entrepreneurship - professional career paths that tend to meander, or require comparatively long gestation periods - application of talents across a wide range of professions in kindred and non-kindred industries  Slide 56 which shows the leading occupations associated with AICAD degree programs offers a tangible illustration of the diversity of talents that art and design students bring to the labor force.  Presented as an occupation industry matrix slides 57 to 61 provide selected labor force characteristics for individuals employed in kindred art and design fields for the New York metropolitan area. 1 In part, our motivation for presenting this data both by industry and occupation, is to highlight the extent to which individuals with similar art and design occupations are employed across a diverse group of industries. This variance speaks to a broad applicability of talents. It also suggests that art and design careers are potentially more resilient, and less vulnerable, to cyclical and structural changes in the economy than other occupations.  Although the numbers vary considerably across industries and occupations, art and design disciplines particularly in the professional services sectors, show a comparatively high incidence of self-employment. At the same time, and again perhaps indicative of the non-linear career paths that art and design related professionals take, the proportion of recent graduates (age with a Bachelor’s degree or higher) employed full-time lags behind that of more traditional professions. While the incidence of full-time employment rises with age, this pattern has potentially important implications with respect to college financing in general and the assumption of student loans in particular. Finally, while the incidence of full-time employment among recent graduates is comparatively low, those who are employed full-time demonstrate comparable earnings to individuals of similar age and attainment in other professions. The more interesting question is how these and the new generation of art and design graduates will fare in the next decade. 1 - A complete data set is presented in a separate appendix for the nation’s largest U.S. cities. 55

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 The Future Affordability of an AICAD Degree  Slides 65 and 66 show the comparative growth in cost of attendance, family resources, and financial need from 1987 to Almost lock-step with time, the cost of attendance for private higher education has increased at a rate significantly faster than inflation or family income for well over a decade. Despite rising costs, enrollment has continued to increase – driven by a combination of factors including rising numbers of high school graduates, a sustained infusion of grant aid and an ever growing reliance on family and student debt.  Although the vast majority of institutions continue to “make their class” evidence of increasing fiscal stress continues to mount. While AICAD institutions have tended to move along the same path – for example, virtually all (slide 67), have seen a significant increase in the number of families applying for aid, a large majority have managed to sustain a comparatively strong position as indicated by their overall proportion of full-pays, tuition discount, and net tuition (slides 68 to 71). -Trajectory Model Pricing Scenarios-  To help understand implications of current price trends over the course of the next decade, we have constructed a trajectory model that allows us to examine how specified changes in attendance costs, government aid, and family resources are likely to affect net tuition and student debt. While our model is a simplification of the pricing dynamics that institutions and families actually face, it does incorporate the effect on yield in response to both rising net attendance costs and competitor price shifts, and it is meant to illustrate the increasing difficulty that families and institutions alike will face – even under optimistic assumptions.  Slides 72 to 77 present four pricing-aid scenarios – including a most probable (“Base Case”) scenario; a low-price / high aid (“Access”) scenario; a high price/ low aid (“Perfect Storm”) scenario, and a high-price / high aid (“Bull-Market”) scenario. While the Bull Market and Perfect Storm scenarios generate greater net tuition on a per student basis, under the model assumption of moderate price-elasticity, almost all of that gain is lost to a decrease in yield. Additionally, the two high price scenarios result in significantly greater levels of student debt. In contrast, inflation adjusted student debt under the Access scenario increases by approximately $8,000 over the course of the decade compared with a nearly $25,000 increase under our more aggressive Perfect Storm scenario.  Viewed side by side, these four scenarios epitomize the idea of the “tuition aid spiral” and help to demonstrate that -at least for institutions that are below capacity, more aggressive increases in tuition may ultimately contribute little or nothing to the bottom line (slide 77). This does not remain the case however when the model is run to test the sensitivity to price increases. Under assumptions of lower and then higher sensitivity to price (slides 78 and 79 respectively) the net revenue trajectories for the four pricing-aid scenarios are essentially transposed. 64

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 Emergent Demographics and Implications for Market Geography  Apart from the price and resource dynamics already discussed, the enrollment and fiscal future of private higher education will be profoundly shaped by the changing social-demographic composition of a next generation of students.  To help understand how the mix of students will likely change over the next decade, we have developed a framework for cross-classifying families with children based on three key dimensions: parent marital status, parent education attainment, and race. In tandem these three characteristics serve as a highly reliable predictor of family resources as well as the likelihood of college participation and attainment. By arraying current youth across these three dimensions it is therefore possible to discern the extent to which a next generation of students is likely to come from families with the resources and wherewithal to sustain a healthy enrollment demand or whether the compositional changes are likely to further tax an already burgeoning demand on aid.  To help illustrate this construct, slides 80 through 89 present a series of cross-tabulations comparing basic characteristics across these core dimensions for the Chicago metropolitan area. Similar slides have been prepared for the 60 largest U.S. cities and are included in a separate appendix. Under this segmentation, students in a given market area are aggregated into a 36 cell matrix that consists of nine tiers of marital-status and parent attainment and four ethnic racial groups. A fourth dimension reflecting student age then allows us to observe the relative growth of each segment.  For Chicago this framework suggests an increasing bifurcation in the social background of students with disproportionate gains expected among White –Two parent – Bachelor’s and above as well as Hispanic – Two Parent – No-College families. While both the base numbers and comparative growth of segments vary considerably from one market area to the next, the pronounced disparity in the levels of parent attainment and marital status – drawn sharply across lines of race/ethnicity are remarkably constant. 80

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Number of Children by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) – Chicago Metropolitan Area RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 81 Source: Census 2000 PUMS, HCRC Custom Tabulation

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Within Race Distribution by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) - Chicago Metropolitan Area RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 82 Source: Census 2000 PUMS, HCRC Custom Tabulation

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Within Cohort Distribution by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) - Chicago Metropolitan Area RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 83 Source: Census 2000 PUMS, HCRC Custom Tabulation

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Median Family Income by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) - Chicago Metropolitan Area RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 84 Source: Census 2000 PUMS, HCRC Custom Tabulation

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At or Below Poverty Threshold by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) - Chicago Metropolitan Area RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 85 Source: Census 2000 PUMS, HCRC Custom Tabulation

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Number of Children by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) – Los Angeles Metropolitan Area RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 86 Source: Census 2000 PUMS, HCRC Custom Tabulation

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Number of Children by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) – Boston Metropolitan Area RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 87 Source: Census 2000 PUMS, HCRC Custom Tabulation

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Number of Children by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) – Atlanta Metropolitan Arera RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 88 Source: Census 2000 PUMS, HCRC Custom Tabulation

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Number of Children by Family Status, Parent Education, Age Band, and Race (cells with an unweighted N of less than 30 have been suppressed) – New York Metropolitan Area RACE: Black Hispanic White Asian AGE: YR of ENTRY: Family/ Education Status Two Parent- Both MA+ Two Parent- MA+/BA Two Parent- Both BA Two Parent- One BA Two Parent- Some College Two Parent- No College One Parent- BA One Parent- Some College One Parent- No College 89 Source: Census 2000 PUMS, HCRC Custom Tabulation